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The Boring but Essential Topic of 401k Plans

401ks, like most other things concerning finance is a boring subject, but you have to know more about this boring topic because it concerns you. A 401k is something that you can use and you should know about it because it is for your benefit that it was created.

Overcoming the Boredom

You have to overcome the boredom that you feel whenever you are studying financial matters especially when it deals with 401k because it concerns your future. The first thing that you need to know is what a 401k is in the first place. A 401k refers to a tax-deferred retirement plan. The term 401k refers to the part of the legislation that was enacted which made this kind of plan a possibility. Under this type of plan you do not have to pay taxes for the amount that you contribute towards it. Taxation would be put off until the time that you use it or when you retire.

How a Tax Deferred Retirement Plan Works

If you are receiving $30,000 on a yearly income and the amount of taxes that you have to pay is valued at $6,000 then that leaves you with $24,000 that you can use. If you contribute $2,000 of your total income to your 401k then only $28,000 would be taxed then. This means that you put more in your savings. Employers usually match a portion of the amount that you contribute towards your 401k. Sometimes the employers add 50% of the total contribution of the employees. This means that the more you contribute to your 401k the faster it grows.

Investing Your 401k

You might have the option of choosing how the money in your 401k can be invested. You can choose to invest it in the stock market. There are various stocks that you can choose from and they all vary in risk potential. You can choose to be safe and invest in food companies or those that are engaged in infrastructure projects. You can choose to be daring and go for the bigger returns but higher risks of computer and hi-tech companies. Planning for your retirement? Figure out how much super you need to retire at Suncorps superannuation site.

You should learn to diversify when it comes to your investments. You should invest in some products that are high risk and some that are relatively safe. That way you can minimize your losses and still take advantage of any trend in the market.

When it Becomes Taxable

Your 401k will become taxable when you use it during your retirement. The rates that would be followed then are those that are in effect in the market.

Do You Have a Good 401k Plan?

Do you think that that you have a good 401k plan? There are several things that you can use in determining whether you have a good plan or not. The first thing is whether it is compliance with government regulations. Is it following what the law says? How are the investments for the plan doing? You know that your money could all end up as nothing if it is invested in the wrong companies.

Discussing a 401k plan might be a boring topic but there would come a time when you would wish that you paid more attention to it.

The preceding was a guest post.

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2 comments - What do you think?  Posted by Cash Flow Mantra - June 22, 2013 at 6:45 am

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My Last Quarterly Dividend Report — Sorry to Say

It is with some sadness and a heavy heart that I bring to you this last quarterly dividend report.  I had been making it a point to increase my dividend income and had been doing a good job of it this year, but circumstances have forced me to change direction.  You see, the dividend stocks were in my retirement account which I am taking as a lump sum to pay off some outstanding tax debt.  I will probably write more about that decision later.

So in preparation for the distribution, I did allow some of my stocks to get called out so the dividend income is a bit lower compared to last quarter.  But had I not had to make this decision, I am sure that I would have been able to meet my goals for the rest of the year.  At least that’s my story and I’m sticking to it.

A Decrease in Dividend Income, But Not Unexpected

 

 

 

 

 

 

 

 

 

 

 

 

 

 

You can see from the graph that the income was down from the first 2 quarters of this year.  Like I said, I allowed SDRL and STX primarily to have some shares called away without buying those back which I would have done if the portfolio had kept going.  But since I knew that I was arriving at this decision to liquidate, I just went with the cash and have been totally in cash since mid-September.

Nevertheless, I think it was a good experience to focus on dividend income over the past 12 months.  This is exactly what I will need to do someday when I retire, namely wring cash out of my investments so that I don’t have to tap into the principal.

Now, my focus will be to eliminate a bunch of other debt so that I can aggressively invest and put together a nice portfolio of cash spewing assets.  But for now, I think debt elimination will provide a better return on my investment since the interest rates are high enough and the savings are all tax free.  So that’s where I will be putting my energies which means that you can be looking forward to debt reports.  Yippee!

 

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6 comments - What do you think?  Posted by Cash Flow Mantra - October 22, 2012 at 6:00 am

Categories: Investing   Tags: , , , , , ,

Dividend Income Report for Q2 of 2012

I am really excited to write this dividend income report especially after having put together the numbers.  As you know (or maybe you don’t), it has been my goal to increase the dividend income coming into my retirement account and get familiar with dividend investing as a prelude to retirement.  It has been my belief that I shouldn’t be saving with the goal of living off my savings when I retire.  Rather, I plan on investing in assets that produce income and living off that income.

My goal for the first quarter was $1500 which I was able to meet.  For this quarter, that amount was increased by $300 meaning that I was supposed to make $1800 during these past 3 months.  I planned on being able to increase the dividend payments because I am moving from stocks that don’t pay dividends to stocks that do and increasing the amount that I have invested in those stocks by selling covered calls and using the proceeds to buy more stock.

First, check out the graph of the results:

 

My Dividend Income for Last 2 Years

As you can see, there has been a great increase since making a conscious effort to focus on dividend income.  You can also see that I met my goal of $1800 for the quarter.  In fact, I crushed it with $2143.23!  That is over $700 per month in passive income during a time when the stocks in my portfolio didn’t do all that well.

But it really doesn’t matter if the stocks do very well or not.  When it comes to retirement income, I am looking for solid companies that will be sending out a steady income stream.  I just need to make sure that the worst case scenario (company bankruptcy) doesn’t hurt the portfolio too much.  Otherwise, I should expect some ups and downs in the value of the portfolio, but consistent dividend payments.

Now this quarter, I have a goal of getting $2100.  It seems like that should be pretty easy, but I did get two dividend payments from Silver Wheaton during the quarter (not exactly sure why) and an extra small dividend from Seadrill.  Those payments will have to be made up with additional shares.  But I did add some Nucor stock which should help with that.  I am fairly confident that I can make it to my next target.

I can’t wait for the next report!

 

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24 comments - What do you think?  Posted by Cash Flow Mantra - July 2, 2012 at 6:30 am

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